Slideshow

Mortgage Lending Under Siege

A slew of proposed rules and policy changes is threatening to upend the nascent housing market rebound. The rules include everything from Basel capital standards to "qualified mortgage" rules to Fannie Mae and Freddie Mac guarantee fees. (Image: Thinkstock)

Qualified MortgagesThe Consumer Financial Protection Bureau, run by Richard Cordray, must define by Jan. 21 a Dodd-Frank rule requiring lenders to establish a borrower's ability to repay a loan. If the final rule is too strict banks say that they'll have little choice but to scale back lending. Among their top concerns is that the QM rule may include specific debt-to-income limits.

Qualified Residential MortgagesA sister regulation, the risk retention rule, requires that banks retain 5% of the risk when issuing mortgage-backed securities. A class of high-quality loans known as "qualified residential mortgages" will be exempt from the rule, but how they will be defined remains undecided. One proposal would require that QRM loans be back by minimum 20% down payments. Some lenders and lawmakers, including Rep. Johnny Isakson, R-Ga., warn that such terms would exclude too many borrowers.

Basel IIIUnder Basel III rules, banks with high concentrations of home equity loans and risky residential mortgages would have to set aside more capital. The good news: Comptroller of the Currency Thomas Curry says regulators are working on ways to give community banks a break from the rules.

Higher Guarantee FeesThe Federal Housing Finance Agency, led by Ed DeMarco, has proposed that Fannie Mae and Freddie Mac charge higher fees on new loans in five states to cover the costs of foreclosures. The housing giants would charge lenders 15 to 30 basis points more to guarantee loans on homes in Connecticut, Florida, Illinois, New Jersey and New York. Banks and consumer advocates say the higher guarantee fees would increase costs for minority and low-income borrowers.

FHA Premiums to RiseThe Federal Housing Administration, headed by Commissioner Carol Galante, is expected to seek additional increases in premiums by year-end to shore up its insurance fund. Lenders say a 75-basis point increase in FHA premiums in April, to 1.75% of the loan amount, raises the cost of lending to new borrowers.

Eminent DomainA long-shot proposal by San Bernardino County to seize and restructure underwater mortgages through eminent domain could cause lenders to pull out of the market. Bankers say that would reduce access to credit for future borrowers in those cities, which would potentially drag down home prices.

Mortgage Interest DeductionRepublican presidential nominee Mitt Romney has said he would consider limiting the size of the home mortgage deduction to help pay for an overall reduction in tax rates. Romney suggested capping the mortgage deduction at $17,000 per household as part of a broad plan that includes a 20% cut in tax rates across the board. Lenders, builders and others in the housing industry argue that the proposal would reduce overall home ownership.

A slew of proposed rules and policy changes is threatening to upend the nascent housing market rebound. The rules include everything from Basel capital standards to "qualified mortgage" rules to Fannie Mae and Freddie Mac guarantee fees.